At least 20,000 union workers entrusted hundreds of millions of dollars to Capital Consultants
By Jeff Manning and James Long of The Oregonian staff
September 24, 2000
Many union workers and their families are anxiously awaiting word on the fate of their retirement funds, following Thursday's news that the government had seized control of Capital Consultants and accused its two top executives of securities fraud on a massive scale.
"We're really nervous," said Cynthia Milbradt, a Portland woman whose plumber husband is a member of Local 290 of the Plumbers, Steamfitters and Shipfitters Union and has invested more than $20,000 in the union's 401(k) fund. "I've been calling the union office, and they won't answer my questions. They just shut me out."
Most union trust funds are diversified enough that the loss shouldn't be too devastating a blow for individual employees. But it's still too early to determine for sure the extent of the damage.
The Oregon Laborers had about 20 percent of its 401(k) fund invested in Wilshire Credit, which Capital Consultants said had been assumed by Sterling Capital. Federal officials say the money originally invested in Wilshire Credit is likely nearly a complete loss, following the bankruptcy of Wilshire Financial Services Group , an affiliated company.
"I'm concerned about the overall (retirement plan), which has been raped," said Gayland German, 64, of Portland, a 30-year member of the Oregon Laborers.
"Not knowing that my money is secure, not knowing that these working peoples' money is secure, it just breaks my heart," said Anita Stammer, who has some of her money invested in the 401(k) fund of the Office & Professional Employees International Union Local 11.
With $1 billion under management and union clients stretching from California to Colorado to Kentucky, Capital Consultants was a major player in the union pension world. At least 20,000 union workers -- ironworkers in Hawaii; seafood processors in Alaska; sheet metal workers in Colorado Springs, Colo., and Cleveland; electricians in Phoenix, Ariz., Salt Lake City, Oklahoma City and Chicago – entrusted hundreds of millions of dollars to the firm.
In all, retirement funds provided more than half of Capital Consultants' $1 billion under management.
As of Thursday, however, the government put the Portland investment firm in permanent receivership. Thomas Lennon, the federally appointed receiver, immediately laid off about 30 of the firm's 40 employees and hopes to close the company's doors permanently in about four months. Federal officials say the loss to union funds could eventually top $200 million.
At least two other Portland union retirement trusts have money at stake. The Local 290 funds have about $20 million in Sterling. Local 11 of the Office & Professional Employees International Union has about $500,000 in Sterling. The Eighth District Electrical Pension Fund in Aurora, Colo., has $23 million with Sterling.
Typically, union members contribute a fraction of their wages to retirement and benefit plans, which are overseen by a board of trustees made up of union officials and private contractors.
The trustees, in turn, hire money managers and make broad investment decisions. Mort Zalutsky, a Portland attorney who represents the local Plumbers, Laborers and Office Employees trusts, argued in U.S. District Court Thursday that the trustees of the funds need to be given control of whatever remains of the money they had placed with Capital Consultants.
Actually, Stammer, German and many other union members say they feel betrayed by trustees who handed over millions to the firm and stuck with Jeffrey and Barclay Grayson despite obvious signs of trouble.
One former trustee in particular has earned the ire of the Laborers' rank-and-file. John Abbott, who until 1998 was a powerful Laborers official and a trustee on three large Laborers investment funds, steered millions of dollars to Capital Consultants.
Capital Consultants signed Abbott to a consulting contract that could pay him $950,000.
Abbott could not be reached for comment. He declined all prior interview requests.
As revelations of Capital Consultants problems grew, a handful of union officials, trustees and many union members broke rank and spoke out against the investment firm.
A small group of women grew so frustrated at OPEIU Local 11's refusal to answer their questions that they hired a lawyer. Among their concerns was that Gary Kirkland, head of the local and a trustee on Local 11's 401(k), was biased toward Capital Consultants. Kirkland's son, Dean Kirkland, was Capital Consultants' chief salesman to the union trusts.
Barclay and Jeffrey Grayson attended a meeting with union members, which satisfied few of them. "I was just so disgusted," Stammer said. "From the way Grayson and his son talked to us, I knew they felt we were idiots, that we wouldn't understand even if they explained the situation."
Dean Kirkland quit his job at Capital Consultants on Thursday. "I've stood by the Graysons a long time; I was very loyal," he said in an interview before abruptly ending the conversation.